Murdoch To Propose Metromedia Debt Swap

August 24, 1985|By Charles Storch.

Rupert Murdoch, disclosing some of his financing plans for the proposed purchase of six television stations from Metromedia Inc., said he will offer to exchange existing Metromedia broadcasting debt for about $1.45 billion in cash and preferred stock.

The preferred stock will be in a subsidiary of News America Holdings Inc., itself a subsidiary of the Australian company controlled by Murdoch. Terms of the preferred stock aren`t expected to be disclosed until next month, when Murdoch plans to file the exchange offer with the Securities and Exchange Commission.

One Wall Street source, who asked not to be identified, said the terms of the preferred will be ``somewhat unusual.``

Murdoch will offer Metromedia bond holders cash, preferred stock or a combination of cash and preferred in exchange for their debt. Including adjustments for interest-rate fluctuations, Murdoch said the offer would have a value of about $1.45 billion.

No more than half that value, or $725 million, is to be in preferred stock. If the bond holders decide to receive less than 50 percent of the offer in preferred, Murdoch would make up any shortfall by selling preferred stock to the public.

A Murdoch spokesman declined to say how the cash portion of the offer would be financed. However, the source said Murdoch may raise the cash through bank borrowing.

In May, Murdoch agreed to acquire seven TV stations, including WFLD in Chicago and WNEW in New York, from Metromedia for $2 billion and to sell one of the stations, WCVB in Boston, to Hearst Corp. for $450 million. Because of the TV deal, Murdoch said he plans to divest his Chicago Sun-Times and New York Post newspapers.

Part of Murdoch`s offer included the assumption of about $1.35 billion in Metromedia debt.

The source said the Metromedia deal may work this way: Murdoch assumes the $1.35 billion in debt and pays Metromedia $650 million in cash. He supplies $200 million of that cash and gets the remaining $450 million from Hearst.

Murdoch then exchanges the Metromedia debt for about $725 million in cash and $725 million in preferred stock.

The source said that the infusion of more equity and the reduction of debt will give the TV stations a capital structure closer to that of Murdoch`s Australian company.

Murdoch had been expected to ask Metromedia bond holders to accept some changes in the terms of the debt, including having fewer assets as collateral. The debt is now backed by seven TV and nine radio stations, but Murdoch is only buying six TV stations.

The existing covenants of the debt would have required Murdoch to reinvest the $450 million from Hearst in the TV station group to replace the Boston TV station as an asset.